Standing Committee B

[Mr. Nigel Beard in the Chair]

Enterprise Bill

Nigel Beard: On Tuesday, the hon. Member for South Cambridgeshire (Mr. Lansley) asked on a point of order whether it would be possible for the Committee to debate new clause 8 separately, as further issues concerning it had become apparent only after the group of amendments, in which it was included, had been debated. Having examined Hansard, I have concluded that it is reasonable for the Committee to have the opportunity to consider the new clause further. So, if Members want to debate it, they will be able to do so when we consider new clauses next Thursday.Schedule 16 Schedule B1 to Insolvency Act 1986

Schedule 16 - Schedule B1 to Insolvency Act 1986

Amendment proposed [this day]: No. 416, in page 252, line 33, leave out '28 days' and insert 'three months'.—[Mr. Waterson] 
 Question again proposed, That the amendment be made.

Andy Burnham: I do not want to detain the Committee, but I would like to comment on the administration process and, in particular, the provisions on the consultation of employees. The purpose of the amendment appears to be to ensure as full and detailed consultation as possible, and that all parties relevant to the administration are kept abreast of developments.
 In that context, I want to take a second fully to endorse the points raised by the Trades Union Congress about this part of the Bill. The TUC strongly supports its thrust, which is to facilitate company rescue where practical and make it the main aim of administration, and says: 
''Whether or not a company rescue is possible, it is essential that workers and their representatives are kept informed of developments and consulted as to their views on the possible options under consideration by the administrator. There should be an obligation on the administrator to keep the workforce and their representatives informed of developments as they unfold and to consult them before making decisions on how to proceed.''
 Labour Committee members would strongly endorse that view. We know that the Bill says that the administrator should send a copy of his proposals 
''to every member of the company of whose address he is aware.''
 In supporting the TUC's comments, I ask the Minister whether he is satisfied that the period of 28 days gives sufficient opportunity to get those proposals to all company employees and, if possible, consult them on the steps ahead.

Jonathan Djanogly: I have spoken to several insolvency practitioners, and the time limit was the one issue on which they all concurred. They feel that the 28-day period is simply unrealistic. As one of them said about the proposal,
 ''Frankly, if you're dealing with a company that owns a shoe shop, it would be fine. But, if you're dealing with an Enron or Federal-Mogul''—which owns some 600 to 700 companies as part of its group—''the idea of putting this together in 28 days is simply not feasible.'' I was also told that if the Government want to follow the time-limit approach, they should relate it to the size of the administration. There could be a 28-day period for a single company or small group of companies, and an increasing amount of time as the case becomes more complicated. The Government may wish to consider something along those lines.

Mark Field: For practical purposes, I imagine that the Government would wish to avoid the administrator being little more than a rubber stamp. There is a great danger that a 28-day rather than a three-month period would risk the administrator seeing the full list of proposals merely as a boilerplate document. As those of us who have worked in legal firms know, too often the first instinct is to ask, ''Is there a precedent?'' and to follow the two-page document shown on the word processing system.
 There is a danger that a 28-day time frame would risk the administrator seeing what should be an important document as a perfunctory part and parcel of the process. A standard, vague, two-page document would be provided that did not go to the heart of his efforts to put things in place. The best administrators work in tandem with the key management of a company in trouble by having a recovery plan in place. I accept that it should be in the directors' hands before the administrator is appointed, as there needs to be a vision about how a company can be driven forward in future. An administrator can play an important role in that regard. 
 A restrictive deadline such as the one proposed would risk the process becoming a paper chase. The period of time proposed will not allow the administrator to use his commercial acumen and his experience of other administrations to make a genuine difference to the company's long-term recovery, its business assets and the future rights and opportunities of the employees.

Douglas Alexander: I start with an observation: I concur with the point made by the hon. Member for Eastbourne (Mr. Waterson) in noting, with some curiosity, the description of the Government's motivation in the matter as political. In our many deliberations on strategy in the run-up to the last election, the time scale of corporate insolvency did not feature prominently. None the less, several matters relating to timing have been raised by my hon. Friend the Member for Hemel Hempstead (Mr. McWalter), and by Opposition Members. The issue is important and worthy of a serious response, which I shall endeavour to provide.
 In respect of amendment No. 416, there is some nervousness in the insolvency profession about the proposed time scales, although I believe, not least in the light of hon. Members' contributions, that those concerned are unduly cautious about what is 
 achievable. That touches on the point made by the hon. Member for Cities of London and Westminster (Mr. Field). The proposed time scale will not result in a pro forma exercise; it will provide the basis on which a substantive document can be produced. The view expressed may be unduly influenced by those practitioners who deal with large cases, especially given that the example cited was of either a shoe shop or Enron. However, in cases of such scale and significance as a company the size of Enron, there is provision for an application to be made to the court about the timings involved. 
 My officials have taken clear soundings with those practitioners who specialise in the smaller cases—

Jonathan Djanogly: It is important to appreciate that each application will have significant cost implications. The cost for a large case would be about £15,000 per application, and that money would be taken away from creditors.

Douglas Alexander: We must be aware of the incentives intended to ensure that administrations are more broadly used and thus to give a degree of certainty when people go into administration and when they anticipate coming out of it. The proposed time scales probably strike the right balance. The amendment refers to the time scale in the proposal, but there is also specific provision for an extension or an application directly to the court. There is thus a balanced approach, which recognises the gradations and possibilities.
 My officials have taken soundings with practitioners who specialise in the smaller cases, who think that the time scales will be more than adequate for cases at the smaller end of the market. As I said, clear exit points will be important for smaller companies for which at present costs are a potential barrier to entering administration.

Tony McWalter: I do not want to make my hon. Friend's life more difficult, but I give an example of a case with which I was dealing in which I thought Customs and Excise behaved very unreasonably. Although the company was small, its paperwork was not in the best order. That sometimes gives rise to the size and expectations of the operation that makes a claim on the company's assets. The company's capacity to respond might be out of kilter with that, even though it has strong claims to viability, as was the case in the example that I have given.

Douglas Alexander: I am grateful for my hon. Friend's points. Two issues arise: the conduct of Customs and Excise and the possibility of Inland Revenue involvement. I have some observations to make on Crown preference, when we come to discuss it, that will allay some of his concerns about the actions of public bodies. His second point accords with the spirit of the Bill, which is to ensure that administration will become more accessible and attractive, not least to the type of smaller firm that is conscious of the costs and paperwork involved.
 The profile of cases going into administration as a result of the Bill will shift towards those that are 
 smaller and more straightforward, for which the time scales will prove to be more than adequate. In response to the point made by the hon. Member for Huntingdon (Mr. Djanogly), I accept that some cases cannot be completed within those time scales. Where an extension is required, it can be obtained by consent from the company's creditors and/or from court for a further period of anything up to three months. An extension from the court can be for any period that it considers appropriate, and it will be up to the administrator to justify the period sought. There should therefore be no need for frequent applications for extensions for the consequential costs involved.

Jonathan Djanogly: Returning to the shoe shop scenario, there may be 10 creditors who can be called in one morning. We are talking about a company that has 600 or 700 subsidiaries. I would challenge anyone to call round the creditors and organise consent.

Douglas Alexander: As I have endeavoured to show, we are alive to the reality that there is a spectrum of potential cases for which administration seeks to address the outcomes. Our substantive point is to provide a more accessible and streamlined approach that addresses the particular needs of smaller firms and has the flexibility necessary to accommodate some of the larger and more complex cases, about which the hon. Gentleman spoke. Even in those larger cases where, for example, the automatic three-month period of administration might not be long enough, it should often be possible for the administrator to seek an extension of sufficient length to remove the need for more than one application thereafter.
 It may be of some use and give some comfort to the Committee to know that my officials have been in contact with their opposite numbers in Australia who introduced a similar system some years ago. We have re-lived some of their experiences in the protests that were raised before today's sitting about the time scales. The time scales in Australian voluntary administration procedures are even tighter than those in the Bill. Proposals have to be prepared within 21 days—not 28 days, as the Bill proposes. Similar concerns were initially raised about the time limits being too short. However, I understand that the general consensus now emerging is that although timing is tight, especially for businesses with complex operations, it is not impossibly so. Officials in Australia have reported that they are happy with the way their system is working, and that the benefits of the tight time scales far outweigh the costs. 
 A key point that arose from the consultation process was the view that administration takes too long, and that there is no certainty of when creditors will get their money. That needs to be addressed to reassure the lending community. Our time scales are not unreasonable in the light of experience in Australia. The amendment would extend the period during which an administrator will be required to prepare and send out his or her proposals from 28 days to three months. The 28-day time scale is rightly stringent. The process will be sufficiently flexible, as I have sought to show, not least because we have incorporated sufficient opportunity for that time limit and others to be extended when necessary. 
 My hon. Friend the Member for Leigh (Andy Burnham) made a point about information and consultation of employees, which the TUC briefing addressed. Employees are also creditors, and there will be consultation mechanisms in the Bill. However, that is subject to a recently agreed EC directive, on which there will shortly be consultation about implementation. I therefore argue that it is inappropriate to deal with that issue in this insolvency legislation. The issue is, after all, a more general one of employment rights. I am nevertheless aware of my hon. Friend's point. 
 I hope that I have answered the Committee's concerns and I invite the hon. Member for Eastbourne to withdraw the amendment.

Jonathan Djanogly: How did this time change arise? It seems to be yet another example of a mish-mash of two regimes becoming one regime. Other examples include the ability of companies to appoint their own administrative receivers, or of holders of floating charges to appoint their own administrators when previously they had to go to court. We see a merging of two regimes, which applies in this instance to insolvency practitioners saying that they need more time, and to the banks—having got to the Government—saying that if administrative receivership is being abolished, the new system should be as close as possible to it so that their interests are not prejudiced. Will the Minister comment?

Douglas Alexander: It was certainly good to see so many responses during the consultation process, not least from insolvency practitioners and the banks. I would be intrigued if anyone interpreted my earlier remarks to mean that we have somehow been ''got at'' by anybody, though we were determined to maintain an overall rationale for the Bill; providing greater certainty and streamlining to produce a more attractive and accessible process. Of course, that means making fundamental choices. I appreciate that the community of insolvency practitioners has some anxieties on this matter, but I hope that the Australian example, in which even more stringent time scales were set, will assure them that the process can work effectively for the relevant practitioners.
 The time scale of 28 days was included in the original consultation documentation of July 2001, which was the White Paper. Less comment was then made on this issue than on others. The opportunity for ventilating the issues has been provided. Ultimately, the Government must choose.

Tony McWalter: My hon. Friend has nearly convinced me. He has provided strong arguments for the 28-day period, but is not the small window of opportunity partly a consequence of what precedes the appointment of an administrator? We are trying to achieve a more co-operative relationship between a company in trouble and the available expertise. Will the Minister affirm that the Small Business Service could be revamped to become more accessible to small businesses and allow them to take advantage of help at an earlier stage?

Douglas Alexander: I shall answer my hon. Friend with a couple of remarks. Our ambition is partly connected with time scale, but also, more broadly, with administrative re-fashioning. We want to make help more accessible to precisely the sort of firm that my hon. Friend describes. The profile of companies that have used the administration procedure up to now suggests scope for a rebalancing to address my hon. Friend's point. If managers or directors of companies can anticipate getting into difficulties and secure help earlier, it would be entirely consistent with the spirit of the Bill. We want to provide the means for a company to go into administration, but also to come back out again within fairly tight time scales, ideally in circumstances where company business and employment is safeguarded and the organisation can find a way forward.
 I am aware of the role of the Small Business Service in supporting a range of different small businesses. I shall ensure that my hon. Friend's comments are brought to its attention.

Nigel Waterson: We have had a remarkably long debate on an amendment that talks about leaving out ''28 days'' and inserting ''three months'', but it is an important point. It is not raised by the Conservative party, as the Minister pointed out. There is little political glory for anyone in these provisions, although when we come on to personal insolvency we will suggest that there is clear blue political water between the parties. We are simply trying to put across the views of practitioners who, in perfectly good faith and based on experience, say that some of these time limits are ''preposterous''. They should know what they are talking about.
 I cannot comment on the experience in Australia. History dictates that it is dangerous to assume that one can transplant a set of proposals from one jurisdiction to another and it will all work out the same. Nor do I have the benefit of the briefing from the TUC on which the Minister and other hon. Members have relied. I assume that the TUC thought it not worth the postage to send it to Conservative members of the Committee. It would be an interesting acid test to see whether the TUC bothered to send it to the Liberal Democrats or which of the three factions within their membership it chose. The TUC briefing would no doubt have changed our views on the whole issue. If I thought that we would win the vote I would probably ask my hon. Friends to support me in pushing this to a vote. As I do not, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 441, in page 253, line 25, leave out
'Paragraph 49(1) shall not apply'.

Nigel Beard: With this it will be convenient to take the following amendments: No. 443, in page 253, line 33, at end insert
'paragraph 49 shall apply unless the court orders otherwise but paragraph 51 shall not apply.'
 No. 444, in page 253, leave out lines 34 to 43. 
 No. 538, in page 254, line 7, leave out 'After the conclusion' and insert 
'Within seven days'.
 No. 539, in page 254, line 8, leave out 
'as soon as is reasonably practicable'.
 No. 540, in page 255, line 6, at end insert 
'and that he considers the proposals approved at the initial creditors' meeting are not reasonably likely to be achieved'.
 Government amendment No. 491. 
 No. 541, in page 255, line 31, leave out paragraph 56. 
 No. 449, in page 266, line 39, leave out 'A creditors' and insert 
'The initial creditors' meeting, or any creditors' meeting held before that'.

Nigel Waterson: Yet again, I have not had the benefit of the TUC's views on these amendments, but I will struggle on regardless. I will speak to amendments Nos. 441, 443 and 444 together. As currently drafted, paragraph 50 allows the administrator to dispense with an initial creditors meeting in any of the circumstances mentioned in sub-paragraph (1). I hope that hon. Members are listening as I may ask questions at the end. At present, initial creditors meetings are held in all insolvencies, including administrative receiverships, where there is likely to be no return to unsecured creditors. Those are the circumstances foreseen by sub-paragraph (1)(b).
 Even if there are no decisions for the creditors to make, such meetings provide them with an essential opportunity to raise matters of concern, both as regards the events leading up to the insolvency and the further conduct of the insolvency. The amendments are designed to change the Bill to require a creditors meeting to be held in all cases, with the proviso that the court can order otherwise, but to remove the creditors' powers in relation to the administrator's proposals under paragraph 51 where the creditors are unaffected by those proposals. I hope that that is clear. 
 Amendments Nos. 538 and 539 relate to what is supposed to be a key step in what is anticipated to be a fairly short period of administration. Putting in a definite period will provide a greater degree of consistency. Rule 1.24(3) of the 1986 insolvency rules requires the chairman of a voluntarily arranged meeting to report the results to the court within four days. We think that seven days should be perfectly reasonable in that context. 
 There does not appear to be any need to cause an administration to fail automatically on the rejection of a revision if the original proposals can still be pursued effectively. Amendment No. 540 would still give the administrator the protection he needs and brings administrations into line with the current practice on voluntary arrangements, which I am told has worked reasonably well. 
 Amendment No. 541 would simply leave out paragraph 56. That is based on the view that, in the interests of transparency and accountability, matters 
 to be considered by creditors should always be considered at meetings. A meeting would also enable creditors to debate the issues among themselves and raise points and concerns of which the administrator may be unaware. 
 Amendment No. 449 concerns paragraph 96. Paragraph 96 allows an administrator appointed by the company to be replaced by the creditors at any time, which could make administrators reluctant to take on commitments and responsibilities. The amendment would provide that creditors could not replace the administrator once the initial meeting had taken place. The court would still have the power to replace an administrator. The amendment has the additional advantage of giving the administrator an incentive to hold the initial creditors meeting as quickly as possible. As I explained, if the amendments to paragraph 50 were accepted, there would always be an initial creditors meeting. 
 The amendments have all been suggested by accountants and practitioners in the field and are designed to make the system work more effectively. I commend them to the Committee.

Douglas Alexander: I shall speak first about amendments Nos. 441, 443 and 444. Although we agree that creditors should be fully involved, it is right and proper to focus their involvement in cases in which they have a financial interest. The amendments would create an obligation to convene a creditors meeting, or to seek leave of the court not to do so in all cases, including those in which it is unlikely that the unsecured creditors will have any financial stake. That would add to costs, burden the courts and reduce the returns for those creditors who have an economic interest.
 Amendments Nos. 538 and 539 would require the administrator to report on any decision taken at an initial creditors meeting within seven days rather than as soon as is reasonably practicable. If the administrator is able to issue the report sooner than seven days, why should he not do so? The administrator should report as soon as is reasonably practicable, which is what the provision requires. 
 Amendment No. 540 relates to paragraph 53. The paragraph allows the court to make provision in cases in which an administrator reports to the court that a creditors meeting has failed to approve his or her proposals. In cases in which the creditors have failed to approve a revision of the administrator's proposals, the amendment would provide that the administrator only reported to court if he considered that the proposals approved at the initial creditors meeting were not reasonably likely to be achieved. 
 However, the amendment is unnecessary. The administrator is required to report the outcome of the creditors meeting to the court so that it has a record of the administration's progress. Paragraph 53 allows the court to make provision in such circumstances, but does not require it. In deciding what to do, the court is likely to attach a great deal of weight to the professional judgment of the administrator. If the administrator made it clear that he or she believes that the initial proposals that were 
 approved by the creditors are still workable, and that the creditors were aware when they voted on the revisions that if they rejected the revisions the administrator intended to follow the initial proposals, the court would be likely to allow the administrator to continue with the administration and follow the initial proposals. 
 When creditors have rejected revisions to an administrator's proposals, it is right that the court should have the opportunity to consider the circumstances of the particular case and end the administration, or make an order if it thinks that is appropriate. However, the power is discretionary and will not prevent an administrator from pursuing proposals that have already been approved by creditors if the administrator persuades the court that that is the right way to proceed. I therefore ask the hon. Gentleman not to press the amendments. 
 Amendment No. 491 is a Government amendment. The Bill provides that a floating charge holder can appoint an administrator by the out-of-court route when there is an outstanding winding-up petition against the company. In such cases, the winding-up petition will be suspended rather than dismissed, as the court has not made an order on it. That will mean that the creditor concerned does not have to go to the trouble and expense of presenting a petition if the administration is not successful. Amendment No. 491 will allow the court to consider the suspended winding-up petition and make an order on it if a creditors meeting fails to approve the proposals put to it by the administrator, and the administration therefore does not reach a successful conclusion. I ask hon. Members to support this amendment. 
 Amendment No. 541 would remove the provision that allows a creditors meeting to be held by correspondence. The purpose of the provision is to prevent unnecessary bureaucracy and costs in cases in which the business that needs to be conducted at a creditors meeting can just as easily be handled by correspondence. 
 The details of how the administrator should go about dealing with creditors through correspondence will be covered in the rules that accompany the new legislation. They will ensure that any correspondence is handled appropriately and fairly so that creditors are not disadvantaged. On the contrary, conducting business by correspondence will save creditors the time and expense of having to travel to meetings. I ask that the amendment be withdrawn. 
 I ask the Committee to resist amendment No. 449, which would restrict the creditors' ability to replace an administrator appointed by the directors or company to the period up to the initial creditors meeting. That paragraph relates to the replacement of those administrators appointed by the directors or company through an out-of-court route where there are no floating charge holders to veto the appointment. Although we do not anticipate that creditors in such a case would wish to replace the administrator as a matter of course—or indeed often—if the opportunity to do so is restricted only 
 to the period leading up to the initial creditors meeting, they will have little opportunity to assess the office holder or his or her performance. It is likely that the first opportunity for creditors to interact with the appointed administrator will be the initial creditors meeting, so it does not seem appropriate that that should also be their last opportunity to veto the directors' or company's choice of appointment.

Nigel Waterson: I am happy to beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendment made: No. 491, in page 255, line 11, at end insert— 
'( ) make an order on a petition for winding up suspended by virtue of paragraph 38(1)(b);'.—[Mr. Alexander.]

Nigel Waterson: I beg to move amendment No. 542, in page 256, line 34, leave out paragraph 64.

Nigel Beard: With this we may discuss the following amendments:
 No. 417, in page 256, leave out lines 34 and 35 and insert 
'The administrator of a company may make a distribution to creditors of the company who are neither secured nor preferential only—'.
 Government amendment No. 492.

Nigel Waterson: Amendments Nos. 542 and 417 are supported by the CBI and some practitioners in the business, who believe that the provision is misconceived. The provision assumes that the administrator needs a power to pay what are called ransom creditors in the interests of creditors generally. Currently, administrators deal with ransom creditors as a matter of discretion, without involving the court. It is therefore difficult to see why the provision is needed.
 There is much to be said, however, for providing administrators with a power, in appropriate circumstances, to make distributions to all unsecured creditors as they go along. That is particularly the case if the administration needs to continue for some time, such as when parallel litigation is going on. Currently, the only way in which the administrator can find a medium for distribution is to go through the rather artificial process of proposing a parallel company voluntary arrangement for distribution purposes only. We believe that the administrator should have a power to distribute, but only with the blessing of the court. I commend the amendments to the Committee.

Douglas Alexander: I shall deal with amendments Nos. 542 and 417 before speaking to Government amendment No. 492. The Bill introduces the power for administrators to make payments to unsecured creditors with the permission of the court. That would include payments to all the unsecured creditors in part or final settlement of their claims in proportion to those claims, which in insolvency procedures are usually referred to as a ''distribution.''
 Amendment No. 417 would allow the administrator to make distributions, rather than simply payments, to unsecured creditors during the administration. However, as I have said, the Bill already allows that. Amendment No. 542 would remove the requirement 
 for an administrator to seek the permission of the court for any such payment to creditors. The Bill requires that, in all cases, other than under the Crown preference ring fence. We recognise on reflection that there will be circumstances in which the administrator should be able to make a payment to an unsecured creditor without the court's permission when the payment would help to achieve the purpose of the administration. Amendment No. 492 will allow for that. In light of that, I ask the hon. Gentleman to withdraw the amendment. 
 As I indicated, amendment No. 492 deals with the circumstances in which an administrator can make payments to unsecured creditors. At the moment, paragraph 64 provides that the administrator can make payments to unsecured creditors with the permission of the court, or without the permission of the court if the money is part of the fund that has been ring-fenced for unsecured creditors by virtue of new section 176A, following the abolition of Crown preference. 
 On reflection, however, we do not think that a distinction should be drawn in that way based simply on whether the money is part of the ring-fenced funds. Removing the reference to section 176A will ensure that the payment of ring-fenced money is treated by the administrator in the same way in which any other payments to unsecured creditors are treated. We would usually expect the administrator to put the company into voluntary liquidation in order to make distributions to unsecured creditors; otherwise he or she will have to get the permission of the court. 
 As I already mentioned, the amendment will ensure that the administrator should be able to make a payment to an unsecured creditor without the permission of the court when the payment would help to achieve the purpose of the administration. In the case of a company that operated from a tall office block, if the lifts broke down and the administrator was trying to rescue the company, it would be vital to get the lifts working again. If the lift maintenance company refused to carry out the work unless debts owed to them were paid, and it was difficult to obtain service from another company, the administrator should be able to pay the debt without court sanction. With that colourful example, I ask hon. Members to support the amendment.

Nigel Waterson: I hate to think of people stuck in lifts as a result of the amendment. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendment made: No. 492, in page 256, leave out line 37 and insert: 
'(b) if the administrator thinks that the payment is likely to assist achievement of the purpose of administration.'—[Mr. Alexander.]

Nigel Waterson: I beg to move amendment No. 446, in page 257, line 9, at end insert:
'(1A) Subject to sub-paragraph (3), where no proposals have been approved under paragraph 51 the administrator of a company shall manage its affairs, business and property in accordance with paragraph 3'.
 The Bill does not indicate how the administrator should manage the company's affairs in the period before the initial creditors' meeting. Many businesses are too fragile to withstand the hiatus between insolvency and that meeting. The administrator needs full powers from the time of his appointment, which he currently has. That practical point has been made by people who do this sort of thing day in, day out, and who ought to know what they are talking about.

Mark Field: I will speak only briefly to the amendment, as what we are trying to achieve is self-explanatory. Much of the Insolvency Act 1986, in effect, is being repealed and other elements are being integrated in the Bill. We are entering a new area of insolvency law. As my hon. Friend the Member for Eastbourne rightly pointed out, until we have had several years of what might be called normal practice and custom, administrators may be concerned to avoid doing anything for which they may be criticised. There is therefore concern that the hiatus may be for days or, for whatever reason, a fortnight or so.
 There is a risk that administrators and directors of companies will do nothing, and will feel hamstrung and paralysed against taking any action. It would be sensible to clarify what the administrators' powers are, so that if there is to be a period between the insolvency and administration and the initial creditors' meeting, actions can be taken to ensure that the good will of the company is maintained as far as possible, particularly in the smaller service-related sector. An important element of good will is often the people who work for a company. Even a two-week period between insolvency and a fully-fledged creditors meeting can be difficult when the whole place is paralysed and it is difficult to hide. Some key employees might end up feeling that the best thing would be to walk out on the business. That would be entirely counter to the Government's aim of improving enterprise and ensuring that insolvency provisions allow companies to remain a going concern as far as possible. 
 Will the Minister offer some guidance and explain why the change is being made? How does he envisage the administrators' powers falling into place within the hiatus period? During the interregnum period and the next few years, as a new area of law comes into force, guidance will be necessary as administrators will not be able to rely on custom.

Douglas Alexander: I have listened carefully to the arguments of both hon. Gentlemen. Neither under existing legislation nor under the Bill is it intended to make an administrator seek the directions of the court. Rather, an administrator merely has to comply with any directions that the court gives, if its opinion has been sought.
 The Bill sets out, albeit in modern, plainer language, the provisions under existing legislation; that the administrator may do anything necessary or expedient for the management of the affairs, business and property of the company and that he or she may apply to the court for directions in connection with his or her functions. Paragraph 67 is intended to apply where any such directions have been obtained and requires the administrator to manage the affairs, 
 business and property in accordance with those directions. We have no intention of changing the law in that regard and the drafting does not do so. I am happy, however, to reflect further on the hon. Gentlemen's comments and return to the issue on Report. In that light, I hope that the amendment will be withdrawn.

Nigel Waterson: I am grateful for the Minister's clarification. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Douglas Alexander: I beg to move Government amendment No. 493, in page 257, line 36, leave out first 'charge' and insert 'security'.

Nigel Beard: With this we may take Government amendments Nos. 494 to 496.

Douglas Alexander: These are simply technical amendments to change the term ''charge'' to ''security'' in paragraph 70. ''Security'' is slightly broader than ''charge'' and is the term used in section 15 of the Insolvency Act 1986—we referred to it this morning—which is replaced by paragraph 70. Our intention is that the scope of the existing provision should not be altered. I therefore invite hon. Members to support the amendments.
 Amendment agreed to. 
 Amendments made: No. 494, in page 257, line 37, leave out 'charge' and insert 'security'. 
 No. 495, in page 258, line 5, leave out 'charge' and insert 'security'. 
 No. 496, in page 258, line 7, leave out 'charges' and insert 'securities'.—[Mr. Alexander.]

Nigel Waterson: I beg to move amendment No. 515, in page 258, line 17, at end insert—
'( ) Where the goods are used by the administrator to continue running the business, the administrator must make payments to the owner of the goods under the terms of the hire-purchase agreement.'.

Nigel Beard: With this we may take amendment No. 516, in page 258, line 28, at end insert
'to include any additional value attributable to the owner's ability to re-hire the goods.'.

Nigel Waterson: These amendments were suggested by the Finance and Leasing Association, which, in common with the TUC, has been fairly catholic in whom it has chosen to brief. It states in the covering note that the timetable in the Bill for the administration process is
''wholly unrealistic and will hinder rather than streamline the procedures.''
 Amendment No. 515 is intended to deal with the following situation; if the administrator is using goods under a hire purchase agreement—a company might hire equipment to produce its goods, vans for distribution and so on—the owner of the goods should continue to receive payment under the terms of the agreement. The administrator should not delay disposing of the goods if they are not in use and payments are not being made under the agreement. The amendment is designed to reflect the ruling in the 
 case involving Atlantic Computer Systems plc in 1992. The Minister will be familiar with its terms and will be able to tell us about it. The point needs to be made clear in the Bill, and that is the purpose of the amendment. 
 Amendment No. 516 deals with a slightly different issue. The market value of equipment will not in all cases compensate the lender for the goods on hire. The re-hire value is often worth more than the market value and where the equipment is still within its basic life expectancy, the lender will seek to re-hire in order to capitalise on its investment. The court should be able to use its discretion in such cases, hence the amendment.

Douglas Alexander: I shall resist the temptation to be drawn into a discussion on individual case law and refer to the amendments.
 Paragraph 71 sets out the way in which the administrator can deal with hire purchase property. Amendment No. 515 would provide that where the administrator used hire purchase goods in order to continue running the business, he or she would have to make payments to the owner of the goods under the terms of the hire purchase agreement. However, that situation is better dealt with by existing provisions in insolvency law, which have been incorporated into the schedule. If the owner of the goods is not being paid for their use, paragraph 41(3) provides that he or she may ask the administrator to return them; if that is not granted, he or she may go to court to seek permission to repossess the goods. 
 Case law sets out a number of principles for the courts to follow in deciding such cases; in particular, administration for the benefit of unsecured creditors should not be conducted at the expense of those who have proprietary rights over goods. But the courts are also required to weigh the legitimate interests of the owner of the goods against those of the company's other creditors. In doing so, they should take into account, among other things, the prospects for the success of the administration. We want the courts to continue to be free to carry out this balancing act on a case-by-case basis. 
 Paragraph 71(3) provides that if the court makes an order enabling the administrator to dispose of hire purchase goods, he or she must pay the owner of the goods the net sum that would have been realised if the goods were sold at market value. Amendment No. 516 would require additional money to be paid to take account of the owner's ability to re-hire the goods. That is not right. The owner should be paid the amount that the goods are worth at market value. That will enable the owner to replace the goods if he or she wants to. If the owner believes that some value attaches to the goods as a result of their capacity to be hired, it is up to him or her to persuade the court that that should be reflected in its estimation of their market value.

Mark Field: The amendments are designed to strengthen the position of the leasing company. If they are not accepted, there is a risk that there will be less opportunity for hire purchase. That may be detrimental to small businesses starting out, who
 may be vulnerable to the market and to difficulties in the economy, and who may therefore be disinclined to buy property outright. For example, it is the norm for small printing companies to take out hire purchase agreements on printing machines as they become obsolete so quickly, and that is the nature of their market. If there are stronger restrictions on hire purchase companies, an obvious way for small concerns to build up their business will be removed. Has the Minister given that matter any thought? Does he have any ready statistics that would suggest how the current situation could differ from what will happen in the future if the amendment were rejected?

Douglas Alexander: I cannot offer ready statistics. I hope that I can offer a rationale, although I hesitate to use the term, given the degree to which it was pored over in discussions last week.
 Our intention is that the situation reflects the current position, and I listened with interest to the hon. Gentleman's observations about a smaller company using hire purchase. I cannot comment on individual commercial judgments made by printing or other companies, but consultation has taken place at every stage of the Bill. I have not seen any evidence of legitimate concerns about why the provisions are materially different from what has been anticipated after the consultation process. Although his example was credible, it was hypothetical. If a community of interests had any particular concerns, it has had ample opportunity to bring them to our attention during the consultation process. The fundamental rationale is that the provisions reflect the position at present, so I am not entirely convinced by the scenario outlined by the hon. Gentleman.

Nigel Waterson: We have had an interesting debate, but all good things must come to an end. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Alistair Carmichael: I beg to move amendment No. 466, in page 259, line 10, leave out ''claiming'' and insert ''on the grounds''.
 The genesis of the amendment comes from concerns expressed by the Law Society about the use of the term ''claiming'', which it feels is too vague and open to abuse, with unfounded applications. The altered wording that we propose would ensure that when a creditor or member of a company applies to the court to challenge the administrator's conduct, the creditor or member must have basis in fact for doing so. It must not simply be based on some spurious claim that may or may not be justified. 
 I suppose we are straying into the realms of the terms of written pleadings, and if the Minister can give me some assurance that proper rules of court will be put in place to ensure that any such application will be well founded, I shall be content to leave matters at that.

Jonathan Djanogly: On paragraph 73, if the creditor or member of the company thought that the administrator was acting in a way that was cost-
 excessive, would that constitute either claims or grounds?

Douglas Alexander: I am intrigued by the question, but we are in danger of making a mountain out of a molehill in terms of what the Law Society is recommending. This is simply a drafting point. The provision allows a creditor to go to court ''claiming'' that certain things have happened, whereas the amendment would allow a creditor to go to court ''on the grounds'' that certain things had happened. The effect of the proposed change is captured within the existing wording, so the amendment, which reflects the views of the Law Society, is unnecessary.
 The more substantive point of excessive cost covers a wider range of issues than is captured solely in this schedule. If it will help the hon. Gentleman, I shall write to him to clarify that particular point.

Alistair Carmichael: The diversion of a Division is not without its temptation, but I shall resist. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 423, in page 260, leave out from line 27 to line 24 on page 261.

Nigel Beard: With this it will be convenient to take the following amendments:
 No. 467, in page 260, line 29, leave out 'three' and insert 'six'. 
 No. 517, in page 260, line 29, leave out 'three' and insert 'twelve'. 
 No. 468, in page 260, line 32, leave out 'a specified period' and insert 
'such period as the court shall determine appropriate'.
 No. 469, in page 260, line 33, leave out 
'a specified period not exceeding three months'
 and insert 
'such period as shall be determined appropriate'.
 No. 518, in page 260, line 34, leave out 'three' and insert 'twelve'. 
 No. 424, in page 261, leave out lines 2 and 3 and insert— 
'(b) either (i) a meeting of creditors; or (ii) creditors of the company whose debts amount to at least 50 per cent. of the total unsecured debts of the company (if any).'.
 No. 425, in page 262, line 12, after 'copy', insert 
'to the person or persons who appointed him, to the company and'.

Nigel Waterson: Amendment No. 423 has a strong provenance, in that the CBI and several practitioners organisations support it. It could be counter-productive to restrict the periods during which administrations may continue, even if, first, the creditors and, later, the court can extend them. It can take a long time to prepare restructuring plans and to negotiate satisfactory arrangements with potential financier suppliers and major customers to enable a business to continue. We argued the case this morning that what matters is saving a business, not necessarily a company. If a business is to be sold, it can take
 several months to prepare sales information to find a purchaser and negotiate the agreement.
 If the company is to be rescued through a voluntary arrangement, it may still be appropriate for the administration to continue so that the administrator can pursue remedies that are not available to the supervisor of a voluntary arrangement. One example is to have a transaction at an undervalue set aside under section 238 of the 1986 Act. Such litigation could take two to three years; easily, I interpolate. An administration for a restricted period cannot be regarded as a substitute for an administrator receivership that is unrestricted in length. Receiverships frequently last for more than a year, for example while litigation is pursued or efforts are made to obtain planning permission for development. 
 Amendments Nos. 517 and 518 offer an alternative to the amendment that I just described. They keep paragraphs 75 to 77 as they are, but substitute a more sensible time limit. I would be happy if the Minister accepted either amendment. 
 Amendment No. 424 will be unnecessary if amendment No. 517 or amendment No. 518 is accepted. It would allow an administrator to obtain the required consent at a creditors' meeting where consent cannot be obtained from 50 per cent. of all creditors by value, because one or more large creditors are apathetic or cannot be contacted. 
 Those are three different ways of approaching the same problem.

Alistair Carmichael: Amendment No. 467 would extend the period for the appointment of an administrator under paragraph 75, schedule 16 from three months to six months. The Law Society of Scotland and the Institute of Chartered Accountants of Scotland support the amendment. They have expressed concerns that three months is too short for administration to be completed. The Law Society in particular refers to the sale of assets such as heritable property, which may take substantially longer than the three months that the timeframe provides. I can think of several erstwhile colleagues who would have regarded a conveyancing transaction of three months as one that was conducted with indecent haste. They might find difficulty even with six months. The alternative is that the administrator will be required to obtain consent or leave from the court to remain in office, which may lead to further costs and the diminution of the return to the creditors. Given the length of time at issue, I can see no reason in principle why such unnecessary costs should not be avoided, if possible.
 On amendments Nos. 468 and 469, administration may, for the best of reasons, occasionally take longer than three months to complete. On occasions, it may be virtually impossible to determine exactly how long it will take. It will be open to obtaining the consent of the creditors to extend the period of administration. Thereafter a return to court is required. 
 The purpose of the amendment is that the period of any such extension to be granted by the court might relate to a specific event, such as the sale of heritage or perhaps the conclusion of litigation proceedings. That 
 would obviously put creditors in a much better position. There would also be substantial penalties to several creditors if the claims were left unresolved at the conclusion of an administration. 
 I offer the amendments as probing amendments, and I shall be interested to hear the Minister's views.

Douglas Alexander: The hon. Member for Eastbourne seemed determined to cover all the bases, so I shall speak to amendments Nos. 423, 467, 517, 468, 469 and 518. The amendments seek to remove the automatic end of administration after a period of three months and to leave the administration procedure to continue indefinitely, as in amendment No. 423. Alternatively, they seek to extend the period to either six months, as in amendment No. 467, or 12 months, as in amendment No. 517, subject to a further extension that could be agreed by the court indefinitely, as in amendment No. 468, or by creditors' consent, either indefinitely, as in amendment No. 469, or by 12 months, as in amendment No. 518. We covered the ground in detail this morning in the context of earlier amendments. The same arguments clearly apply.
 Amendment No. 424 seeks to provide that a creditors meeting can agree an extension to the administrator's term of office. The Bill already provides for 50 per cent. of the creditors, by value, to extend the administration, although I recognise that it may on occasion be difficult to meet that threshold without incurring disproportionate costs. That would be the case when, for example, there was a large number of creditors, or when one or more large creditors did not respond or could not be contacted. 
 Paragraph 56 allows for anything that needs to be done at a creditors meeting to be done by correspondence between the administrator and the creditors. I do not think that a formal obligation to hold a meeting is required, but if Opposition Members will not press the amendment, I will agree to reflect on the points raised and return to the matter, if necessary, on Report. 
 Finally, I want to touch on amendment No. 425. The Bill already requires an administrator to notify the court, the registrar of companies and the company's creditors when the administration is concluded.

Nigel Waterson: On a point of order, Mr. Beard. I do not think that we have got that far yet. [Hon. Members: ''Yes, we have.''] I assumed that amendment No. 425 was in its own group, so I did not speak to it. Do you want me to do so?

Nigel Beard: I would prefer to allow the Minister to continue his remarks.

Douglas Alexander: If it would be easier and more convenient for the amendment to be spoken to, and for me then to respond, I would be more than happy.

Nigel Waterson: I would be interested to hear the Minister respond to something that I had not said. I have a short point. The mistake was entirely mine, as I had failed to notice the plus sign between the amendments. I wonder why.
 The amendment is important, because practitioners and the CBI back it. Notice of cessation must be given to the appointer and the company, to enable them to take any action that they consider appropriate. That is my point in a nutshell.

Douglas Alexander: With spontaneity, I can say that we will resist amendment No. 425, which will come as no surprise. The Bill already requires an administrator to notify the court, the registrar of companies and the company's creditors when the administration is concluded. The administrator's duty is to the creditors of the company, and the Bill's proposals will reflect that. In cases when the administrator was appointed by the company or directors, normal working practice would require the administrator to notify those persons that the objective of the administration had been achieved. I therefore ask the hon. Gentleman not to press the amendment.
 For clarity, I should say that we seek to resist amendments Nos. 423, 467, 517, 468, 469 and 518. I have given an undertaking to consider and, potentially, to address on Report amendment No. 424, but I resist amendment No. 425. I ask the hon. Gentleman to withdraw the amendment.

Nigel Waterson: I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 546, in page 263, line 14, after 'that', insert
'the company has no secured creditors or that'.

Nigel Beard: With this it will be convenient to take amendment No. 547, in page 263, line 17, leave out 'has been or'.
 Government amendment No. 497. 
 Amendment No. 548, in page 263, line 28, after 'copy', insert 
'to the person or persons who appointed him to the company and'.
 Government amendment No. 498. 
 Amendment No. 426, in page 263, line 34, leave out '98' and insert '84(1)(c)'. 
 Amendment No. 550, in page 263, leave out lines 36 to 39 and insert 
'and 
 (c) the administrator becomes the liquidator of the company and continues in office unless and until another person is appointed liquidator by the creditors at a meeting held in the prescribed manner and within the prescribed period.'.
 Government amendment No. 499.

Nigel Waterson: Amendment No. 546 is short in compass and intends simply to avoid pointless theoretical debate.
 On amendment No. 547, there is no point in a creditors' voluntary liquidation unless some distribution is to be made to unsecured creditors. The amendment also brings the position in England and Wales into line with that for Scotland, in paragraph 82(2)(b). 
 Amendment No. 548 is a technical amendment.

Jonathan Djanogly: There is another reason why shareholders may want a voluntary arrangement. For many, the aura that surrounds bankruptcy is unfavourable, so even if the company does not have significant assets or anything to make a distribution with, people may fund the company so that it can be wound up on a voluntary rather than a compulsory basis.

Nigel Waterson: I am grateful to my hon. Friend, who speaks from experience; professional experience, of course. I do not want unwittingly to smear him, even if privilege applies to everything that I say.
 On amendment No. 548, notice of the conversion to a liquidation must be given to the appointer to enable him to take any action that he considers appropriate to protect his interest. For that matter, the company also needs to be notified that it is now in liquidation. One would have thought that that would have been painfully obvious. 
 Amendment No. 426 is a technical amendment, tabled again with the support of the CBI. Section 98 relates to the first creditors' meeting for the creditors' voluntary liquidation, not to the winding-up resolution governed by section 84. 
 Finally, I turn to amendment No. 550, which is also a technical amendment. As things stand, sub-paragraph (6) can be interpreted as meaning that the administrator does not become liquidator until it is known that the creditors are not going to appoint someone else. The amendment would avoid that problem, mirroring the existing section 136(3) of the Insolvency Act 1986, under which the official receiver automatically becomes liquidator of a company in compulsory liquidation unless and until someone else is appointed.

Douglas Alexander: I shall speak first to amendment No. 546.
 One condition for moving from administration for creditors' voluntary liquidation is that 
''each secured creditor . . . has received a payment in respect of his debt and is not likely to receive any significant further payment in that respect''.
 It stands to reason that the condition would automatically be satisfied if the company did not have any secured creditors, so the amendment is unnecessary and I ask him to withdraw it. 
 I turn next to amendment No. 547. The primary purpose of moving a company from administration to creditors' voluntary liquidation, notwithstanding the observations of the hon. Member for Huntingdon, is to enable the administrator to make a distribution to unsecured creditors. Therefore, the only relevant condition in relation to unsecured creditors is whether the administrator will make a distribution to them in the future. I agree with the hon. Members that the reference to distribution already having been made appears inappropriate in this context, but I would like the opportunity to consider further how to deal with it. Therefore, I ask the hon. Gentleman to withdraw the amendment on the basis that I shall return to it later. 
 Amendments Nos. 497 and 499 would provide that if an administrator wants to move a company from 
 administration and into creditors' voluntary liquidation or dissolution, he or she will have to file a copy of the notice given to the registrar of companies with the court. That will complete the court records for the administration that will have been opened when the procedure began. 
 Amendment No. 498 simply corrects a reference to a sub-paragraph number in paragraph 82(5). I ask hon. Members to note that the reference to sub-paragraph (4) should be to sub-paragraph (3). I therefore ask the Committee to support amendments Nos. 497, 498 and 499. 
 Turning to amendment No. 548, the Bill already requires an administrator to notify the court, the Registrar of Companies and the company's creditors when the administration is concluded. The administrator's duty is to the creditors of the company and the Bill's proposals will reflect this. In cases where the administrator was appointed by the company or directors, normal working practice would require that the administrator should notify those persons that the objective of the administration has been achieved. I therefore ask the hon. Gentleman not to press the amendment. 
 Amendment No. 426 seeks to amend a reference to the Insolvency Act 1986 that concerns the date on which a company enters creditors voluntary liquidation. Paragraph 82 allows for a company to be wound up as if a resolution for voluntary winding-up under section 98 were passed. However, section 98 relates to the first creditors meeting in a creditors voluntary liquidation. Section 84(1)(c) specifically deals with the company passing the resolution to place the company into creditors voluntary liquidation. I therefore agree to consider this amendment. 
 Having considered the alternative wording proposed in amendment No. 550, I cannot see that it makes any material difference to the meaning of the provision. Both the existing provision and the proposed amendment provide the creditors of the company with the opportunity to nominate someone other than the administrator to serve as the liquidator; and both provide that if this is not done, the administrator will become the liquidator. Given that there appears to be no material difference between the effect of the provision at present and as amended, the amendment is unnecessary. I therefore ask Conservative Members not to press the amendment.

Nigel Waterson: On the basis of the Minister's assurances, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendments made: No. 497, in page 263, line 28, leave out 'send a copy' and insert— 
'(a) file a copy of the notice with the court, and 
 (b) send a copy of the notice'.
 No. 498, in page 263, line 30, leave out '(4)' and insert '(3)'. 
 No. 499, in page 264, line 4, leave out 'send a copy' and insert— 
'(a) file a copy of the notice with the court, and 
 (b) send a copy of the notice'.—[Mr. Alexander.]

Nigel Waterson: I beg to move amendment No. 551, in page 265, leave out lines 36 and 37 and insert—
'(2) The creditors' committee shall be entitled to appear on any application made in reliance on sub-paragraph (1)(b) to (d).'.

Nigel Beard: With this it will be convenient to consider amendment No. 427, in page 265, line 37, at end insert—
'or where the creditors committee fails to apply under sub-paragraph (1)(a) within seven days following the event specified in paragraph 89'.

Nigel Waterson: Amendment No. 551 would make the role of the creditors committee clearer. This is needed in case a creditors committee cannot make a decision quickly because, for example, its members are widely scattered or it is deadlocked on some issue. The ability to appear on the applications should still give sufficient protection to the committee.
 Amendment No. 427 is designed to preserve the ability of the company directors and creditors to act should the creditors committee fail to do so. Creditors committees have not historically been separately represented under our law and committees will be unused to acting independently. The CBI takes the view that there is a real risk that a committee, even when empanelled, might not take the initiative. That could lead to the affairs of a company drifting dangerously. I commend both of the amendments, which are of a fairly technical nature, to the Committee.

Douglas Alexander: Amendments Nos. 427 and 551 are of a technical nature and deal with situations in which there is a creditors committee and an administrator dies, resigns, is removed from office by the court or ceases to be qualified to act as an administrator. Conservative Members appear to be concerned that the committee might not make an application to the court to appoint a replacement administrator. However, as a creditors committee is appointed to represent the interests of all creditors, it is difficult to imagine that such a committee would fail to appoint a replacement administrator if the previous administrator were unable to continue. Our intention is that paragraph 94(b) should provide for the court to replace an administrator on the application of the creditors committee, company, directors, creditors or a joint administrator who remains in office. That would, of course, include any instance where a creditors committee did not appear to be taking the necessary steps to replace an administrator.
 I accept, however, that the drafting of the paragraph may not be clear enough, and parliamentary counsel has been asked to reconsider it and to prepare any necessary Government amendment. In the circumstances, I agree to further reflect on the matters that have been raised. 
 I should clarify that the paragraph that I mentioned largely replicates the effect of section 13(3) of the Insolvency Act 1986 on the replacement of an administrator, but, in the circumstances, I shall further reflect on the matter. In the meantime, I ask the hon. Gentleman not to press the amendment.

Nigel Waterson: I am grateful to the Minister for taking the trouble to explain his thinking on the amendments. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendments made: No. 500, in page 267, line 3, leave out 'dies, because he vacates office or' and insert 
'vacates office by reason of resignation, death or otherwise, because he'.
 No. 501, in page 267, line 16, leave out 'dies, because he vacates office or' and insert 
'vacates office by reason of resignation, death or otherwise, because he'.—[Mr. Alexander.]

Douglas Alexander: I beg to move amendment No. 502, in page 267, line 38, leave out 'be disregarded in determining whether a contract is adopted' and insert
'not be taken to amount or contribute to the adoption of a contract,'.

Nigel Beard: With this we may discuss the following: Government amendments Nos. 503 and 504.
 Amendment No. 552, in page 268, leave out line 6. 
 Government amendment No. 505.

Douglas Alexander: Amendment No. 502 clarifies paragraph 98(5)(a) to make it consistent with the provisions in section 19(6) of the Insolvency Act 1986. The intention behind that section is to provide that the administrator will not be taken to have adopted contracts of employment as a result of anything done or not done within the first 14 days of his or her appointment.
 Paragraph 98(5)(a) is intended to replicate that provision, but it has been suggested that it is too broad as currently drafted. It states that no account shall be taken of the administrator's actions in the first 14 days in determining whether a contract is adopted. That could be taken to mean that actions specifically taken by the administrator to terminate contracts of employment would not have effect. That is not our intention. 
 Amendment No. 502 will make it clear that the administrator is not to be taken to have adopted a contract of employment by reason of anything done or not done within 14 days of his or her appointment, which is the case at present. 
 Amendments Nos. 503 to 505 are simply technical amendments, which change the terms ''leave'' and ''an entitlement'' to ''holiday'' in paragraph 98(6) to make it consistent with the existing provision in section 19(9) of the Insolvency Act 1986, which the paragraph replicates. I therefore ask hon. Members to support the amendments. 
 On amendment No. 552, paragraph 98(6) defines what constitutes ''wages or salary'' for the purpose of determining liabilities arising out of certain contracts of employment. It replaces section 19(9) of the Insolvency Act 1986, and is intended to have the same effect. We are aware that the scope of the phrase 
''a sum payable in lieu of an entitlement''
 is more ambiguous than the existing provision, and I have tabled an amendment to ensure that the paragraph is consistent with the provision that it replaces. I therefore ask the hon. Gentleman not to press the amendment.

Nigel Waterson: I am happy not to press the amendment in my name.
 Amendment agreed to. 
 Amendments made: No. 503, in page 268, line 1, leave out 'leave' and insert 'holiday'. 
 No. 504, in page 268, line 3, leave out 'leave' and insert 'holiday'. 
 No. 505, in page 268, line 6, leave out 'an entitlement' and insert 'holiday'.—[ Mr. Alexander.]

Douglas Alexander: I beg to move amendment No. 584, in page 271, line 31, after 'make', insert
', in or towards the satisfaction of the debt secured by the floating charge,'.

Nigel Beard: With this it will be convenient to discuss Government amendments Nos. 585 and 586.

Douglas Alexander: Amendments Nos. 584 and 586 deal with the order of priority of payments. The law of receivership in Scotland has developed separately from its English and Welsh counterparts, and the order of priority of payments that an administrative receiver can make to creditors is set out in primary legislation. The purpose of the amendments is to ensure that the current situation is replicated by incorporating into the primary legislation the fact that any payments that an administrator makes to a floating charge holder in Scotland must be consistent with the order of priorities for such payments and in respect of the relevant floating charge.
 Amendment no. 585 simply corrects an incorrect reference in paragraph 113(2). The reference to section 176 should be to 176A. I ask the Committee to support the amendments. 
 Amendment agreed to. 
 Amendments made: No. 585, in page 271, line 36, leave out '176(2)(a)' and insert '176A(2)(a)'. 
 No. 586, in page 271, line 42, at end insert— 
 '114 In Scotland, the administrator in making any payment in accordance with paragraph 113 shall make such payment subject to the rights of any of the following categories of persons (which rights shall, except to the extent provided in any instrument, have the following order of priority)— 
 (a) the holder of any fixed security which is over property subject to the floating charge and which ranks prior to, or pari passu with, the floating charge, 
 (b) creditors in respect of all liabilities and expenses incurred by or on behalf of the administrator, 
 (c) the administrator in respect of his liabilities, expenses and remuneration and any indemnity to which he is entitled out of the property of the company, 
 (d) the preferential creditors entitled to payment in accordance with paragraph 65, 
 (e) the holder of the floating charge in accordance with the priority of that charge in relation to any other floating charge which has attached, and 
 (f) the holder of a fixed security, other than one referred to in sub-sub paragraph (a), which is over property subject to the floating charge.'.—[Mr. Alexander.]
 Schedule 16, as amended, agreed to.

Schedule 17 - Administration:

Douglas Alexander: I beg to move amendment No. 565, in page 272, line 6, at end insert—
'Companies Act 1985 (c. 6) 
 1A The Companies Act 1985 shall be amended as follows 
 1B In section 225 (alteration of accounting reference date)— 
 (a) in subsection (4) for ''an administration order is in force'' substitute ''the company is in administration'', and 
 (b) in subsection (6) for ''An accounting reference period may not in any case, unless an administration order is in force'' substitute ''A company's accounting reference period may not in any case, unless the company is in administration''. 
 1C In section 425(1) (power of company to compromise) for ''an administration order being in force in relation to a company'' substitute ''in administration'' 
 1D In section 427A(3) (mergers and divisions of public companies) for ''an administration order being in force in relation to the company'' substitute ''where the company is in administration''.'

Nigel Beard: With this it will be convenient to discuss Government amendments Nos. 566, 567, 506 and 568 to 573.

Douglas Alexander: Amendments Nos. 565 to 573 add various new paragraphs to schedule 17, which makes some of the amendments consequent upon the changes to the administration procedure contained in the Bill. The amendments are the result of further necessary changes coming to our attention.
 Amendment No. 506 corrects a cross-referencing error in paragraph 21 of Schedule 17. The Committee will be aware that the Secretary of State has the power to amend schedule 17 if further amendments are found to be necessary once the Bill has obtained Royal Assent. 
 I therefore ask hon. Members to support the amendments. 
 Amendment agreed to. 
 Amendments made: No. 566, in page 272, line 8, at end insert— 
'2A In section 1 (proposal for company voluntary arrangement)— 
 (a) in subsection (1) for ''(other than one for which an administration order is in force, or which is being wound up)'' substitute ''(other than one which is in administration or being wound up)'', and 
 (b) in subsection (3) for paragraph (a) substitute— 
 ''(a) where the company is in administration, by the administrator,''. 
 2B In section 5(3) (approval of company voluntary arrangement)— 
 (a) for ''an administration order is in force'' substitute ''is in administration'', and 
 (b) for ''discharge the administration order'' substitute ''provide for the appointment of the administrator to cease to have effect''. 
 2C In section 6(2)(c) (challenge of decision in relation to company voluntary arrangement) for ''an administration order is in force'' substitute ''is in administration''.'
 No. 567, in page 272, line 23, at end insert— 
'5A In section 140 (appointment by court of liquidator following administration or voluntary arrangement) for subsection (1) substitute— 
 ''(1) Where a winding-up order is made immediately upon the appointment of an administrator ceasing to have effect, the court may appoint as liquidator of the company the person whose appointment as administrator has ceased to have effect.'' '.—[Mr. Alexander.]

Jonathan Djanogly: I beg to move amendment No. 553, in page 272, line 23, at end insert—
'5A In section 129 after subsection (1) add— 
 ''(1A) If the court makes an order under paragraph 11(1)(e) of Schedule B1 that the company be wound up, the winding up of the company is deemed to commence at the time of the order.''.'.
 This is a technical amendment suggested by PricewaterhouseCoopers. Section 127 of the Insolvency Act 1986 makes any disposition of a company's property after the commencement of its compulsory liquidation void unless the court orders otherwise. Under section 129(2), a compulsory liquidation, except one following a voluntary liquidation, is deemed to start when a petition is presented. That can make it impossible for a company to continue to trade once a winding-up petition has been presented, because any further transactions are valid when they are entered into, but will become invalid if a winding-up order is eventually made on the petition. Courts are sometimes asked to make validation orders under section 127, to allow the company to continue trading normally. Paragraph 11(1) of Schedule B1 will allow the court to make one of any number of orders when hearing an administration application. It could even treat the administration application as a winding-up petition and make a winding-up order. That could lead to administration applications also making it possible for a company to continue trading because of the risk that the court would decide to treat the application as a winding-up petition, with transactions after the presentation of the application then becoming invalid under section 127. 
 The suggested amendment attempts to avoid that result by changing the deemed commencement date to be the date of the winding-up order, thus ensuring that any transaction after the presentation of the administration application will continue to be valid even if the court makes a winding-up order instead.

Douglas Alexander: I can assure the hon. Gentleman that his rousing rendition of the amendment has not been in vain. The amendment makes provision in the Insolvency Act 1986 that allows for the commencement of winding up—if a winding-up order is made following the hearing of an application for an administration order—to be the making of the order. I thank the hon. Member for Huntingdon for drawing the Committee's attention to the issue and would ask him to withdraw the amendment on the understanding that we shall consider it and hope to return to it on Report.

Jonathan Djanogly: On the understanding that the Minister will review the issue, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendment made: No. 506, in page 275, line 27, leave out '82(4)(b)' and insert '82(5)(b)'.—[Mr. Alexander.]

Jonathan Djanogly: I beg to move amendment No. 554, in page 275, line 27, at end insert—
'22 (1) For section 387(1)(a) substitute— 
 ''(a) if— 
 (i) the winding up is by the court and the winding-up order was made on the termination of an administration, or 
 (ii) the company was placed into creditors' voluntary liquidation under paragraph 82 of Schedule B1, 
 the relevant date is the date on which the company entered into administration.''.'.
 This technical amendment is to ensure that the relevant date for calculating the preferential claims does not change if the company moves directly from administration to liquidation. The existing legislation achieves that for compulsory liquidations but not for creditors of voluntary liquidations. That has caused problems in cases in which a creditor's voluntary liquidation would be the most beneficial way of winding up the company's affairs, but would be unfair to preferential creditors because it changed the relevant date. The courts have found innovative ways around the difficulty, but it would be better to include—

Tony McWalter: Could the hon. Gentleman go a little more slowly please?

Jonathan Djanogly: I shall do my best, having neared the end. It is our intention to ensure that the necessary provision should be included in the Bill.

Douglas Alexander: The hon. Gentleman is on something of a roll this afternoon. The amendment intends to amend section 387 of the Insolvency Act 1986 so that a provision is included that sets the relevant date for the calculation of preferential claims if a company has been in administration and the administrator then puts the company into voluntary liquidation under paragraph 82 in order to make a distribution to unsecured creditors. I thank the hon. Member for Huntingdon once again for raising an important issue and reassure him that we shall consider the points that he has raised and return to it on Report. I would ask him to withdraw the amendment on that understanding.

Jonathan Djanogly: Being on something of a roll, I think that I should stick to the script. In any event, I am grateful to the Minister for his assurance that he will consider the matter and beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendments made: No. 568, in page 275, line 32, at end insert— 
'22A In section 424(1)(a) (application for order in relation to transaction defrauding creditor) for ''in relation to which an administration order is in force'' substitute ''is in administration''.'
 No. 569, in page 275, line 33, leave out paragraph 23 and insert— 
'23 (1) Schedule A1 (moratorium where directors propose voluntary arrangement) shall be amended as follows. 
 (2) In paragraph 4(1) (exclusion from eligibility for moratorium)— 
 (a) for paragraph (a) substitute— 
 ''(a) the company is in administration,'', and 
 (b) after paragraph (f) (and before the word ''or'') insert— 
 ''(fa) an administrator appointed under paragraph 20 of Schedule B1 has held office in the period of 12 months ending with the date of filing,''. 
 (3) In paragraph 12(1) (effect of moratorium on creditor) for paragraph (d) substitute— 
 ''(d) no administration application may be made in respect of the company, 
 (da) no administrator of the company may be appointed under paragraph 12 or 20 of Schedule B1,''. 
 (4) In paragraph 40 (challenge of directors' actions during moratorium) for sub-paragraph (7) substitute— 
 ''(7) Sub-paragraph (8) applies where— 
 (a) the appointment of an administrator has effect in relation to the company and the appointment took effect before the moratorium came into force, or 
 (b) the company is being wound up in pursuance of a petition presented before the moratorium came into force. 
 (8) No application for an order under this paragraph may be made by a creditor or member of the company; but such an application may be made instead by the administrator or (as the case may be) the liquidator.'' '.
 No. 570, in page 275, line 38, at end insert— 
'23A(1) Schedule 8 (scope of insolvency rules) shall be amended as follows. 
 (2) In paragraph 10 (provision as to committees) for ''section 26, 49, 68, 101, 141 or 142 of this Act'' substitute ''section 49, 68, 101, 141 or 142 of, or paragraph 55 of Schedule B1 to, this Act''.' 
 (3) In paragraph 29 (general provision) for ''section 22, 47, 66, 131, 143(2) or 235 of this Act'' substitute ''section 47, 66, 131, 143(2) or 235 of, or paragraph 45 of Schedule B1 to, this Act''.'.
 No. 571, in page 277, line 11, at end insert— 
'Company Directors Disqualification Act 1986 (c. 46) 
 24A The Company Directors Disqualification Act 1986 shall be amended as follows 
 24B In section 6 (duty of court to disqualify unfit director of insolvent company)— 
 (a) for subsection (2)(b) substitute— 
 ''(b) the company enters administration,'', 
 (b) for subsection (3)(c) substitute— 
 ''(c) where neither paragraph (a) nor (b) applies but an administrator or administrative receiver has at any time been appointed in respect of the company in question, any court which has jurisdiction to wind it up.'', and 
 (c) for subsection (3A)(b) substitute— 
 ''(b) in a case within paragraph (c) of that subsection, to the appointment of the administrator or (as the case may be) administrative receiver.'' 
 24C In section 7(3) (duty of office-holder to report to Secretary of State) for paragraph (c) substitute— 
 ''(c) in the case of a company which is in administration, the administrator,''.
 No. 572, in page 277, line 12, at end insert— 
'24D The Companies Act 1989 shall be amended as follows 
 24E In section 161(4) (disapplication of enactments to default proceedings) for ''sections 10(1)(c), 11(3), 126, 128, 130, 185 or 285 of the Insolvency Act 1986'' substitute ''section 126, 128, 130, 185 or 285 of, or paragraph 41(6) (including as applied by paragraph 42) of Schedule B1 to, the Insolvency Act 1986''.' 
No. 573, in page 278, line 22, at end insert— 
'30A In section 215(3) (provision of Financial Services Compensation Scheme in relation to insolvency) for ''presents a petition under section 9 of the 1986 Act or Article 22 of the 1989 Order'' substitute ''makes an administration application under Schedule B1 to the 1986 Act or presents a petition under Article 22 of the 1989 Order''.'—[Mr. Alexander.]
 Schedule 17, as amended, agreed to. 
 Clause 240 ordered to stand part of the Bill.

Clause 241 - Prohibition of appointment

Douglas Alexander: I beg to move amendment No. 581, in page 166, line 40, after first 'of', insert
'a receiver who on appointment would be'.
 This is a technical amendment to correct a reference to a floating charge-holder in Scotland being entitled to appoint an administrative receiver. It has been put to us that the relevant charge documentation often refers not specifically to the appointment of an administrative receiver but to the appointment of a receiver. When that person is appointed, if he or she falls within the definition given in section 51 of the Insolvency Act 1986, by virtue of section 251(b) of that Act, he or she is an administrative receiver. The amendment will ensure that clause 241, which deals with the prohibition of appointment of such a receiver, reflects that. I ask hon. Members to support the amendment. 
 Amendment agreed to.

Nigel Waterson: I beg to move amendment No. 523, in page 167, line 7, after 'instrument,' insert
'and the date so appointed shall be a date after the date of such order'.
 The amendment is designed to prevent the Secretary of State from fixing the date retrospectively. If she could do that, it would mean that the parties to a floating charge would not know when they created the charge whether it would carry the right to appoint an administrative receiver or not. That would make the decisions involved more difficult for both the lender and borrower. In a detailed press release of 12 November 2001, the Under-Secretary was quoted as saying that the existing provisions would apply to all floating charges entered into before the commencement of this part of the Bill. It would be reassuring for the business community if that matter could be set straight in the Bill.

Jonathan Djanogly: I certainly support the amendment. Clearly, there will be an interim period between Royal Assent and the date when the order is made and it is important that businesses should know where they stand. However, I want to ask the Minister why the Government have included these provisions at all? If the Government believe that prohibiting administrative receivership is the way forward, why not say that and allow the Bill to receive Royal Assent? Why should that provision be introduced by way of order?

Douglas Alexander: Put simply, the amendment is unnecessary. It is designed to add a provision to the
 Bill to prevent the Secretary of State from legislating retrospectively. I can assure Conservative Members that we have made it clear to all interested parties—and I am happy to confirm it for the record—that the power will not be exercised so as to apply the new law retrospectively to any floating charge created before new section 72A comes into force. I hope that that gives the degree of comfort that is sought.

Mark Field: There is a practical concern, with which the Minister has not dealt in any detail. There will now be a great incentive for creditors to ensure that their interests are protected by a floating charge prior to the Bill coming into force. That will have a negative effect, given what the Government are trying to achieve. Would it therefore not be better to go down the road of this amendment than to find that a lot of floating charges are created to fall just inside the time limit to which the Minister referred?

Douglas Alexander: To be perfectly honest, I am not convinced by the argument outlined by the hon. Gentleman or the rationale of the amendment. Bringing in powers on the appointed day by order is normal practice and although we are cognisant of the risks of retrospective legislation, we believe that the existing drafting of the provision is suitable for the implementation of complex provisions. We have given assurances, which I have been happy to confirm today, that deal with the concerns expressed by the hon. Member for Eastbourne. The statutory construction that we propose is the correct way forward and it advances the Bill's objectives. On that basis, I ask the hon. Gentleman to withdraw the amendment.

Jonathan Djanogly: I would appreciate a reply to my question. Why do the powers need to be brought in by order at all?

Douglas Alexander: It is normal practice to do so. I hope that that answers the hon. Gentleman's point. We retain our original position on that.

Nigel Waterson: I do not want to appear churlish, so I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Douglas Alexander: I beg to move amendment No. 477, in page 168, line 17, leave out from second 'project' to end of line 20 and insert—
'which— 
 (a) is a financed project, and 
 (b) includes step-in rights.'.

Nigel Beard: With this it will be convenient to consider Government amendment No. 478.

Douglas Alexander: The purpose of the amendments is to ensure that new section 72E, which excepts project finance generally, is consistent with the other project finance provisions. The existing provisions refer to ''the'' project company in 72E(1)(b). That is not quite apt, since the definition of ''project company'' found in paragraph 6 of Schedule 2A provides that a number of companies may be project companies. The substitution of 72E(1)(b) will also mean that this exception works similarly to new sections 72C and 72D as regards the definition of step-in rights in paragraph 6 of Schedule 2A.
 Step-in rights are taken by financiers to protect their security where a project runs into trouble. Such rights are usually over the main project company carrying out the project rather than all companies carrying it out, hence the wording of paragraph 6 of Schedule 2A. Therefore, the exception will apply where such rights are taken over a project company, but the rights do not need to be taken over all project companies. I ask the Committee to support the amendments. 
 Amendment agreed to. 
 Amendment made: No. 478, in page 168, line 25, leave out paragraph (b).—[Mr. Alexander.]

Douglas Alexander: I beg to move amendment No. 587, in page 168, line 33, leave out 'if' and insert 'by virtue of'.

Nigel Beard: With this it will be convenient to take Government amendments Nos. 588 to 594 and 507 to 509.

Douglas Alexander: Amendments Nos. 588 to 594 are designed to narrow the scope of the exception in new section 72F to the prohibition of an appointment of an administrative receiver. Our policy is not that it should still be possible to appoint an administrative receiver of a company just because that company is a party to a market contract or because its property is subject to a system charge or a collateral security charge. The ability to appoint an administrative receiver in the context of such financial market charges is needed only where the administrative receiver is appointed by someone entitled to do so by virtue of a market charge, a system charge or a collateral security charge.
 Amendment No. 588 removes the definitions that referred to the Financial Markets and Insolvency (Money Market) Regulations 1995, which were revoked on 1 December 2001. It also amends the reference in new section 72F(a) to deal specifically with a market charge. 
 Amendment No. 507 slightly widens the scope of the definition of ''party'' as set out in paragraph 1(3)(c) of new schedule 2A. As used there and in new section 72B, the term ''party'' includes a party to an agreement that forms part of the arrangement, which provides for raising finance as part of the arrangement, or which is necessary for the purposes of raising finance as part of the arrangement. 
 Concern was raised that the final part of the definition—that a party to a capital market arrangement includes one that is necessary for the purpose of raising finance—was too narrow and would not include the provision of, for example, an insurance policy by way of finance, a liquidity facility or some service to the arrangement, which may be necessary to implement the arrangement, but which is arguably not necessary to raise finance. 
 By using the word ''necessary'', the amendment will have two benefits. It will mean that the scope of the exception is not unwarrantably wide, because the agreement in question will need to be necessary for the purposes of implementing the capital markets arrangement. However, it is also general, and there is 
 no scope to construe it so narrowly as to mean that the agreement must concern the raising of finance. It will include the agreement to provide insurance for the arrangement, because the provision of an insurance policy or a liquidity facility will usually be necessary for implementation. 
 Amendments Nos. 508 and 509 are in response to comments that we received on consultation. They extend the scope of the exceptions contained in new sections 72C, 72D and 72E to step-in rights and provide that the definition of finance will for, the purposes of paragraph 6 of new Schedule 2A, include an indemnity. 
 The revised wording of the provision on step-in rights will cover the situation in which a new company is used as a vehicle to help rescue a project that has gone wrong. The project financier who stepped in could then sell the new company vehicle to new financiers to carry on the project. The new wording will also provide for the situation in which the reference to assuming ''responsibility'' for continuing the project is not an appropriate way to refer to what happens in certain projects in practice. By extending the definition of finance to include an indemnity, we will cover the situation in which an insurer makes finance available by means of providing insurance to the financier of the project, and takes step-in rights. I therefore ask hon. Members to support the amendments. 
 Amendment agreed to. 
 Amendments made: No. 588, in page 168, line 34, leave out paragraphs (a) to (c) and insert— 
'(a) a market charge within the meaning of section 173 of the Companies Act 1989 (c.40),'.
 No. 589, in page 168, line 41, leave out 'there is'. 
 No. 590, in page 168, line 42, leave out 'over property of the company'. 
 No. 591, in page 168, line 44, leave out paragraph (e). 
 No. 592, in page 169, line 1, leave out 'there is' 
 No. 593, in page 169, line 1, leave out 'those regulations' and insert 
'the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 (S.I. 1999/2979)'.
 No. 594, in page 169, line 2, leave out 'over property of the company'. 
 No. 507, in schedule 18, page 280, line 28, leave out 'raising finance as part of' and insert 'implementing'. 
 No. 508, in schedule 18, page 281, line 42, after 'to' insert— 
'(a)'
 No. 509, in schedule 18, page 281, line 43, at end insert— 
', or 
 (b) make arrangements for carrying out all or part of the project. 
 '(2) In sub-paragraph (1) a reference to the provision of finance includes a reference to the provision of an indemnity.'.—[Mr. Alexander.]
 Question proposed, That the clause, as amended, stand part of the Bill.

Nigel Waterson: The clause is important and deserves a stand part debate before we move on. It involves the partial abolition of administrative receiverships, which has not met with universal support. I think that the Minister quoted the British Bankers Association earlier—it seems a long time ago—as saying that it was in favour of the proposals, but I do not think that that is strictly accurate. Certainly it is not accurate so far as the clause is concerned, although it may have been for a different aspect of the Bill, in which case I apologise profusely.
 In the BBA's response to the White Paper, it said how successful administrative receivership had been, describing it as 
''an engine for reconstruction and enterprise in the UK''.
 It went on to describe the importance of secured credit as making it possible to put someone in place quickly, with a view to restructuring a company, saving jobs and getting the business moving again in a cost-effective way.

Tony McWalter: Does the hon. Gentleman agree that people put in place quickly often act strongly in favour of the bank, and do not necessarily bear in mind the needs of all the creditors, or even of the continuing existence of the business?

Nigel Waterson: I am aware that that argument is made. However, in a separate submission, the BBA referred me to figures published in April 2000 that showed that 75 per cent. of cases handled by bank specialists involved the recovery of the company. That is encouraging. The BBA said that
''British banking is highly based on rescue, unlike the American system, which is based on asset. By terminating AR, Banks are moved toward a system in which higher risk ventures, like independent start-ups, will be shunned by loaners''.
 My hon. Friend the Member for Huntingdon made that point in an earlier debate. According to the BBA, it is not only the banks that will suffer, but the start-ups and the people looking for venture capital for higher-risk ventures, who may find it more difficult to raise the loans that they need. 
 The BBA also raised the issue of speed, stating: 
''In times of financial crisis, the swift appointment of an AR enables the situation to be quickly dealt with. An AR, say, who comes in at 5.00 on a Friday afternoon will have the weekend to prepare for Monday morning, and the beginning of the rescue process.''
 It goes on to mention the system being bogged down 
''with business and administrators sitting around, waiting for Courts to act and allow them to go in.''
 We will unarguably lose some flexibility by scrapping ARs in their present form for most situations. The BBA response to the White Paper also stated: 
''this will lead to an environment in which finance for the vast majority of businesses which do not get into difficulty may become less flexible, more expensive and probably less available.''
 If I may say so, we have here a classic example of the law of unintended consequences; something of which the Government have proved themselves to be masters on all sorts of subjects. 
 The BBA is not alone in expressing disquiet about 
 the proposal. Freshfields Bruckhaus Deringer, the law firm, stated: 
''we believe that by abolishing administrative receivership and muddling the objectives of an administration, a cost-effective and successful rescue tool will be lost, and a more complex and consequentially more expensive administration regime will be introduced.''
 That, again, comes from people who deal with the subject on a day-to-day basis. 
 I, like other hon. Members, have also received views submitted on behalf of9 the Royal Institution of Chartered Surveyors, the Association of Property Bankers and the Investment Property Forum, who all have concerns about clause 241, particularly about the exemption threshold of £50 million. That figure has a suspiciously round ring, and I would be interested to hear the Minister tell us by what thought processes that figure was arrived at. That threshold is intended to enable project finance companies to appoint administrative receivers. Those bodies say that they believe that the threshold should either be removed or reduced to what they consider to be a realistic figure of £10 million. 
 The Association of Property Bankers suggests that the majority of the projects with which it is involved are funded at below the £50 million threshold. That is also an issue that has been raised with me by the British Bankers Association. If I say that the £50 million is an arbitrary figure, I do not intend to be gratuitously offensive. I am sure that the Minister would agree that it must be an arbitrary figure, but I ask him to give some thought as to whether he could listen to the representations being made by those bodies; they know their own business, and they suggested amendments—they have not yet been tabled but may be tabled on Report—that would reduce the figure to £10 million. 
 The Minister deserves some credit for having listened to City voices on the question of continuing administrative receivership in certain circumstances. I know that the City of London Law Society has been active in trying to persuade Ministers and officials to exempt project finance deals and public-private partnership deals. I do not want to discuss the political aspects of public-private partnerships; we shall have plenty of other opportunities to debate that. However, a recent article in Legal Week stated: 
''The rationale behind continuing to allow administrative receiverships in large-scale private projects is that they rely heavily on bank finance 'step-in' rights to allow them to complete work under the control of the banks should deals be threatened the collapse.''
 At least partially, the Minister and his colleagues seem to have listened to the representations of those who regularly deal with the rules. 
 I understand that administrative receiverships will continue to be available for holders of pre-existing floating charges, so the two parallel but separate regimes will continue for the foreseeable future. We have the capital markets arrangements, or project companies with step-in rights, where the intended or actual debt is more than £50 million. We have public-private partnerships or utility project companies with 
 step-in rights. We also have members of recognised clearing houses or investment exchanges, companies undertaking money market contracts and member companies of financial markets. I am sorry only that the hon. Member for North-East Derbyshire (Mr. Barnes) is not here to hear about the City of London's success in lobbying the Government on those specific exemptions. More specifically, special administration regimes are to be kept in place for water and sewage undertakings, Railways Act administrations, air traffic services, Greater London Authority public-private partnerships and building societies. 
 We welcome those exemptions, as far as they go, but it is clear that a sufficient body of opinion, enough to make a stand part debate worth while, has reservations about scrapping administrative receivership. On reflection, the Minister might think that, having left open the wide range of exemptions that I have described, the option should simply be left open. Perhaps he can give us some idea of the number of situations that could arise with the £50 million limit, and how many more deals would be covered if it was reduced to £10 million. 
 We are not talking about a vast number of administrative receiverships. However, the proposal has its supporters; those people believe that it gives them the ability to sort something out in a failing company in quick time when other measures might be too slow and expensive, and ultimately unsuccessful. We want to probe the Minister's thinking on the rationale behind the scrapping of ARs and on the exemptions that he has put in the Bill, particularly the £50 million limit.

Jonathan Djanogly: When we discussed clause 239 stand part, I spoke at some length on the issue, acknowledging that it could be discussed then or now. I am not going to go over it again. However, having reached the end of the debate, I have had the concerns that I then had about the ending of administrative receivership confirmed. On the whole, as my hon. Friend the Member for Eastbourne said, administrative receivership has been a successful regime. If anything, banks now tend to use it not as a way of beating companies over the head but as leverage to bring people to the negotiating table in order to find a sensible way forward.
 The end result here is going to be a new administration system that will contain certain characteristics of the old administrative receivership regime, but with the addition of court involvement, extra costs and extra time delays. I still have grave doubts about it. 
 I should be grateful for the Minister's comments on the workings of one of the exceptions; chapter 72C of the Insolvency Act 1986, the exception for public-private partnerships. The clause is not self-explanatory; neither are the explanatory notes. Is it the case that where public money is involved in a public-private partnership, the Government's new principles of protecting unsecured creditors and wanting companies to trade on are effectively thrown out of the window, with the Government retaining the 
 right to slash and burn with their administrative receiver? 
 If that is the case, I shall be grateful to hear the Minister's view. Is it not a question of double standards; it is acceptable for the Government to act in one way, but business cannot act in the same way?

Douglas Alexander: Even though there have been only a limited number of contributions, the debate has ranged widely. In order to put into context some of the more detailed issues that we shall consider during the rest of the afternoon, I shall reflect that in my comments. For clarity, clause 241 will prohibit the appointment of administrative receivers by inserting a new chapter IV to part III of the Insolvency Act 1986. Part III of that Act is about receivership generally; the new chapter IV also includes five exceptions to the prohibition.
 Administrative receivership allows the holder of a floating charge whose security covers the whole or substantially the whole of a company's property to enforce that security by appointing an administrative receiver, usually referred to in Scotland as the receiver, as I said earlier. It effectively places control of a company in the hands of a single secured creditor, who has little or no duty to consider the best interests of other creditors. 
 The impression left by the recession of the early 1990s is that administrative receivership was often used to pull the plug on a company with no thought given to whether, with breathing space, the company could trade out of its difficulties and survive. By prohibiting a floating charge holder from appointing an administrative receiver and ensuring that the collective administration procedure is used, we shall move firmly in favour of a procedure in which all creditors have the opportunity to participate and under which the administrator must act in the interests of all creditors. However, we are not interfering with the existing corporate lending agreements. 
 Holders of floating charges created before the Bill comes into force will still be able to appoint administrative receivers if they want to. It could be that they will want to use the new procedure. If so, we have provided that holders of existing charges may appoint an administrator to take advantage of the new procedure. We recognise that some very specialised financing structures are used in business today for which the ability to appoint an administrative receiver is vital in order to maintain control and ensure continued cash flows or capital repayments to the appointer. 
 That is perceived to be necessary by City financiers and their advisors to allow these structures to raise the amounts of finance—at the sort of interest rates—that they currently raise, and which are often significantly more favourable than through traditional commercial lending. So, in addition to the prohibition on the appointment of an administrative receiver in new section 72A, the Bill provides five specific exceptions, which will allow the appointment of an administrative receiver in particular circumstances. 
 A specific query was raised by the hon. Member for Eastbourne in relation to the threshold of £50 million. I start with the obvious point that the financial threshold outlined highlights the fact that these are specialised financial structures. The provisions are not aimed at normal, everyday, commercial lending, and the figure in respect of capital market arrangements was arrived at following discussions between my officials and the City of London Law Society. Therefore, we see no reason why the threshold is inappropriate. It is set high enough to limit the scope for use as an avoidance mechanism by normal commercial lenders, but we have the power to amend it, if that turns out to be necessary.

Nigel Waterson: Will the Minister at least give us an assurance that he will not completely shut his mind—or the collective departmental mind—on this issue? Organisations such as the Royal Institution of Chartered Surveyors are serious players that clearly have a view. In the City, £50 million may seem like small change, but for others, such a threshold is too high. Will he at least not rule out the possibility of changing it?

Douglas Alexander: Perhaps the appropriate way forward would be to invite those individuals who have concerns to contact me or my ministerial colleagues, so that we are fully briefed on the points that were raised earlier in the debate.
 On the specific point raised by the hon. Member for Huntingdon, who gave us a graphic description of the potential powers of the Government in relation to the use of AR procedure, the issue in question is the protection of essential services—for example, hospital units or other places where exactly that sort of mechanism has been anticipated. There are other project finance exceptions for the private sector, but we will, no doubt, have an opportunity to consider those in subsequent discussions. 
 Question put and agreed to. 
 Clause 241, as amended, ordered to stand part of the Bill.

Schedule 18 - Schedule 2a to Insolvency Act 1986

Amendments made: No. 507, in page 280, line 28, leave out 
'raising finance as part of'
 and insert 'implementing'. 
 No. 508, in page 281, line 42, after 'to' insert— 
'(a)'
 No. 509, in page 281, line 43, at end insert— 
', or
(b) make arrangements for carrying out all or part of the project. 
 '(2) In sub-paragraph (1) a reference to the provision of finance includes a reference to the provision of an indemnity.'.—[Mr. Alexander.]
 Question proposed, That schedule 18, as amended, be the eighteenth schedule to the Bill.

Mark Field: I am afraid that the discussion that the
 Minister was throwing into the slightly longer grass is going to occur sooner, because I want to touch on one or two points that have already been discussed in relation to that limit.
 I think that we all accept that there should be exceptions to the prohibition on the appointment of administrative receivers. Certainly, from the perspective of the City of London, it is important that such an exception should apply to several capital markets, arrangements and transactions. I have two concerns. One has already been covered during the stand part debate on clause 241. I also think that £50 million is far too high. I know that my hon. Friend the Member for Eastbourne has tried to tease out of the Minister at least some concession that the threshold will be reconsidered. Many thresholds for arrangements in other capital markets, especially in third world and developing countries, will be set lower than £50 million. The risk is that such funds will begin to dry up if there is no protection for the banks that lend money to a riskier debtor, whether in a sovereign state or not. Will the Minister give us guidance drawn from the research that was conducted as part of the consultation process? Was full consideration given to that point? 
 Will the Minister give us some guidance on paragraph 9 relating to public bodies? In view of the fact that an increasing number of public bodies will be caught up in the PFI and PPP regime, will the special purpose vehicles created as part of those initiatives be considered public bodies for the purposes of the paragraph, or will they be left outside the confines of the arrangement? 
 Conservative Members have some concerns about how the measures will operate, although we welcome the idea that exceptions will be made. Will the Minister give us some guidance on how in practice exceptions will be made?

Douglas Alexander: I shall deal briefly with the hon. Gentleman's substantive points. I made it clear that the figure of £50 million was decided on after discussions with the City of London Law Society. As a reflection of our desire for consultation, I should add that if any parties think that we have made a substantive error in this respect, they may contact us with any evidence that they want to present. However, we believe that the figure is correct, and I shall explain why it is correct in relation to the relevant scale of figures.
 We set a financial threshold of £50 million for the arrangements, which emphasises the point that the structures are specialised finance structures, not normal everyday lending. One should also take into account the environs in which the figure emerges. We are talking about a thriving area of business for UK plc, particularly in the City. True-sale arrangements, of which the Canary wharf securitisations are examples, are worth £180 billion in Europe, and some 40 per cent. of such deals are done in the United Kingdom. It is estimated that whole-business arrangements, of which the Punch Tavern securitisations is but one example, are worth some £3 billion and are used in few other jurisdictions, as 
 most jurisdictions do not have administrative receivership. 
 The hon. Gentleman also raised the matter of public-private partnerships. I emphasise that there will be opportunities to discuss the matter in more detail. Commonly known as PPPs, they enable projects that provide essential public services. Continued delivery of some public services is obviously essential, and continued recourse to administrative receivership provides for a continued exercise of step-in rights. Without recourse to administrative receivership, step-in rights could be blocked by the moratorium on administration. On that basis, we came to the view that it was appropriate for one of the exceptions to be defined in terms of the PPP, as outlined in the drafting. 
 I hope that that answers the queries, although there will be further opportunities to discuss the matter as the afternoon goes on.

Mark Field: Will the Minister confirm that PPP and PFI-type arrangements will fall under the confines of paragraph 9 and that they will be regarded as public bodies for the purposes of the schedule?

Douglas Alexander: That would depend on whether the bodies were project companies within the meaning of new schedule 2A. If it will be helpful, I shall write and clarify the matter.
 Question put and agreed to. 
 Schedule 18, as amended, agreed to.

Clause 242 - Abolition of Crown preference

Nigel Waterson: I beg to move amendment No. 437, in page 170, line 5, after 'production)'' ', insert
'and immediately after those words there shall be inserted ''after deducting any amounts paid or payable by the Secretary of State in respect of such debts under Part XII of the Employment Rights Act 1996.''.'.

Nigel Beard: With this we may discuss amendment No. 438, in page 170, line 5, at end insert—
'(4) In section 189 of the Employment Rights Act 1996 (Transfer to Secretary of State of Rights and Remedies) subsections (2) to (4) shall cease to have effect.'.

Nigel Waterson: On one level, the abolition of Crown preference is a dramatic step. I hope that, with your indulgence, Mr. Beard, we can have a modest clause stand part debate on the concept after we have dealt with these fairly narrow amendments. The proposal has been widely welcomed, but as with so much else to which the Chancellor turns his hand, one must be careful about the small print.
 The amendments deal with one situation. The expectation from all the DTI's announcements and from the forest of press releases was that Crown preference would be completely scrapped, and a great cheer went up when that was announced. However, although the clause abolishes the Crown's preferential rights to the debts listed in subsection (1), it does not abolish the DTI's subrogated preferential rights in respect of the salary and wage arrears that it is 
 required to pay employees under the insolvency provisions of the Employment Rights Act 1996. Those subrogated preferential payments can be very substantial, and must be paid in full before anything can be paid out on any remaining preferential claims that employees may have. That can seriously reduce an employee's chances of receiving any payment in excess of the sums payable by the Secretary of State. It seems, therefore, that the Chancellor giveth with one hand and taketh away with the other. 
 These are probing amendments, however. I would be interested to hear on what basis the Government will maintain the existing position for such preferential claims.

Jonathan Djanogly: I welcome the abolition of Crown preference in the round, although I shall give my stand part speech on the next clause, which deals with the substance.
 I have one question. The Bill refers to certain categories, and subsection (1)(a) deals with Inland Revenue debts. The explanatory notes state, however, that those are debts that are due to the Inland Revenue for 12 months prior to the relevant date. Similarly, paragraph (b) refers to Customs and Excise debts, but those are debts owed six to 12 months prior to the relevant date. Why does the clause refer to debts owed for 12 months, not to all debts? Perhaps other debts are cancelled in some other way, but I doubt it. I would be interested to hear the Minister's opinion.

Douglas Alexander: I have listened with interest to the points that have been made in favour of the amendments, and I shall deal first with amendment No. 437.
 When amounts are paid out of the national insurance fund under the insolvency payments provisions, the position of the Secretary of State is somewhat different from that of other Crown preferential creditors. She assumes the rights of all the former employees concerned and becomes a single creditor of the employer in their place. She steps into the former employees' shoes, and has the same preference as they would have had in respect of those debts. Indeed, she has the same preference as they still have in respect of the proportion of those debts that exceeds the statutory maximum payable under the insolvency payments provisions, which are intended to provide a minimum safety net. 
 It would be odd for the Secretary of State to have a different status in the insolvency proceedings than the former employees themselves would have in respect of the same debts. Any private sector individual or organisation that paid the former employees' claims would have the same preference as the employees, and I am not at all convinced that the Secretary of State should be placed in a worse position than other creditors in equivalent circumstances. 
 It should be borne in mind that debts under the insolvency payments provisions arise at or around the time of a business's insolvency. That contrasts with other Crown preferential debts, which are levied as Government revenue, and have generally accrued or been owed during the trading life of the business. 
 Debts under the insolvency payments provisions also arise from money being paid out of the national insurance fund. The Secretary of State has a responsibility to safeguard the fund, into which employees and employers have paid their contributions for eventualities such as those that we are discussing. In the light of all those considerations, I cannot accept amendment No. 437, and will ask the Committee to vote against it if it is pressed. 
 I have listened carefully to the points that have been made on amendment No. 438 with regard to removing the ''super preference'', as it might be best described. The amendment cuts across several areas of Government policy, and I am sure that hon. Members will appreciate that I cannot accept it. However, if Opposition Members are prepared not to press it, I will reflect on what has been said. I should make it clear, however, that I am not making any promises that I will conclude that changes are necessary. 
 I was asked a specific question on the scope of preferential debts to Customs and Excise, as opposed to those of the Inland Revenue. The scope of the status was set out in the Insolvency Act 1986. If that clarity is insufficient and the hon. Member for Huntingdon wants further guidance on the terms of that, I would be happy to write to him.

Nigel Waterson: I am not sure that I accept everything that the Minister has said, but his explanation has been full. Given that there are issues to develop in the stand part debate and on the following clause, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Question proposed, That the clause stand part of the Bill.

Nigel Waterson: As I have suggested, the scrapping of Crown preference is a major step that we welcome. In fairness, it has been welcomed widely by many organisations, such as the Institute of Directors, the Federation of Small Businesses and the R3 group, which is the prime clearing house of the various insolvency practitioners.
 Crown preference is one of the relatively few issues in the Bill that impinges on our constituency mailbags and surgeries to some extent. There has always been a feeling that the Crown preference was unfair on the part of small business men and sole traders—certainly, those who come and see me from time to time—and that, were it not for Crown preference, in many situations money would be available for creditors that is not available at the moment. 
 One or two of my colleagues, including my hon. Friend the Member for Cities of London and Westminster, have more than hinted that when dealing with them on behalf of constituents who have got themselves into difficulties, the Inland Revenue, and especially Customs and Excise, can be extraordinarily inflexible. That seems even more so when companies get themselves into insolvencies. 
 The Opposition broadly welcome the scrapping of Crown preference. There is a figure for the cost to the Treasury—I cannot put my hands on it at the moment, but it is at least several hundred million pounds—but the way to look at that is as extra funds available for creditors other than from the Government and the taxpayer. That is to be welcomed. 
 There are some more sceptical voices, however. The Institute of Chartered Accountants has pointed out that an unintentional effect of the removal of Crown preference is that the Inland Revenue and others could be motivated to enforce methods of recovering their debts even earlier, as my hon. Friend the Member for Cities of London and Westminster suggested. That could precipitate more insolvencies, not fewer. 
 A similar point has been made by the British Bankers Association, which takes the view that the sum of funds released will have little or no material impact on the recovery rates of other creditors. It stated in its response to the White Paper: 
''The most important thing the Crown could do to support the further development of enterprise, would be to behave in a 'commercial' way when considering CVAs or other instances of distress. Businesses could be saved if the Crown were prepared to forego part of its 100p in the pound.''
 I want to focus on the role of the Crown, not in insolvency, but in the build-up to it, when a business is clearly in difficulty with cash flow or something similar and needs the forbearance and understanding of its creditors, including such bodies as the Inland Revenue and Customs and Excise. My experience, having attempted a number of times to help constituents who were under great pressure, is that it is barely worth spending the money on a stamp to write to Customs and Excise. The response is invariably totally inflexible; a pound of flesh will always be taken under present circumstances. The Inland Revenue tends to be more flexible—or perhaps less efficient—in following up monies owed to it. 
 During the crucial period when a business is clearly in difficulties, but is not necessarily doomed to total failure and liquidation and needs understanding and forbearance, the provision will have no effect whatever. As I understand it, all that we shall achieve under clauses 242 and 243 will be to say that the Crown will not have its pound of flesh once an insolvency has taken place. The benefits of that, although to be welcomed—and I have welcomed them—might be outweighed by the fact that more businesses will be pushed into liquidation, because the bodies that we have mentioned will be much more efficient and much keener to ensure that they are not owed money in the liquidation of their companies. They will be more proactive in pursuing those amounts when they fall due and more deaf to entreaties that they should hold off and wait to see what happens. I should like to think that that is not the case. 
 I am sure that the Minister and his Department will have had discussions with the Treasury, the Inland Revenue and Customs and Excise about those matters. I hope that they have at least sought—possibly even obtained—assurances that there will not be a change of practice so that money that would otherwise be lost 
 under the provisions of the Bill can be recouped. Otherwise, many of us, as constituency Members, might find it even more difficult when constituent companies, especially small traders and individuals trading on their own account, come to us for help and try, through us, to extract some sympathy and mercy from the Crown bodies. I hope that my concern is unjustified and that the Minister will reassure me and, through me, many small businesses.

Jonathan Djanogly: As has been said by many, the concept of getting rid of Crown preference is welcome. That will make us more like other countries where, I believe, it is a rarity. However, in some ways, too much is being made of how the provisions will dramatically benefit unsecured creditors in particular. It is important to appreciate that the amount of the preference debt is not automatically distributed. In reality, only the assets that are caught by the floating charge will go into the preference pot, ready for distribution. I would be grateful for the Minister's clarification as to whether the Crown will remain as an unsecured creditor as well.
 What will follow is, to my mind, certain, having seen the banks in operation. We shall see the banks trying to ensure that as many assets as possible are subjected to fixed charges rather than to the floating charge—they will try to make the pot as small as possible. I would be pleased to know whether the Minister has considered that possibility and what the Government's response would be. One wonders why the Government did not just accept that they would not be a preferential creditor, write off the money and allow it to be distributed to unsecured creditors.

Douglas Alexander: I recognise the importance of the scrutinising function of the Committee, but given the wide welcome that the provisions have received, perhaps we are in danger in our debate of not catching the genuine reaction to the proposals that is felt the length and breadth of the country. The removal of preferential status in insolvency proceedings is widely welcomed, not least by the kind of small business people for whom the hon. Member for Eastbourne spoke. The Crown will no longer have preferential rights in respect of debts due to the Inland Revenue for PAYE and national insurance contributions or to Customs and Excise for VAT and certain excise taxes and duties. I should clarify, for the convenience of the hon. Member for Huntingdon, that the Crown will be an unsecured creditor, but the clause addresses the issue of preferential status.
 The money that the Crown receives as a preferential creditor will be available to ensure higher returns to other creditors. The Crown will then rank alongside all other unsecured creditors. The idea of the Crown giving up its preferential status was welcomed in the publication ''A Review of Company Rescue and Business Reconstruction Mechanisms''. Responses to the consultation were largely of the view that the Government are in a far better position to absorb the effect of bad debts than the average trade creditor, and recognised that there was little merit in the contention 
 that preferential status was an appropriate compensation for the Crown's position as an involuntary creditor. 
 In response to the points raised in relation to Customs and Excise and the conduct and actions of the Inland Revenue, I hope that I can give the reassurance that the hon. Member for Eastbourne seeks. The revenue departments have assured us that in pursuing outstanding debts following the abolition of preference they will continue to offer help and support to vulnerable businesses facing genuine difficulties. That includes support for business rescues via voluntary arrangements and in administrations. The revenue departments are committed to assisting viable businesses trade through financial difficulties wherever possible. They have always taken an active approach to their debt-management effort, even where they knew a debt in a potential insolvency was protected by preferential status. There is no reason why abolition of preference will change their approach.

Nigel Waterson: That is precisely what we are worried about—that the provision will not change their approach. I do not think that my experience is unique among members of the Committee; I would be interested to hear whether other Members have had the same experience. My experience is that Customs and Excise in particular does not take a sympathetic or helpful attitude, so for it to say that it will continue to take that attitude may be good salesmanship, but does not cut any ice with me or with some of my constituents.
 I find it chilling that the best that Customs and Excise can do is to say that it will carry on as it has been doing, because that is precisely my complaint. We need a much more proactive statement from the Minister on behalf of the bodies in question that they will be more sympathetic and helpful rather than the opposite. He said that they would be carrying on as before, which is the last thing that anyone wants.

Douglas Alexander: I take the hon. Gentleman's point, but it is hardly a cheap political point to suggest that some of the actions of Customs and Excise and the Inland Revenue under previous Governments have not always recognised the importance of sustaining viable businesses. There has been change, but there is further work to do. However, this is a signal of the Government's general commitment to advancing an enterprise agenda and working closely with companies through the appropriate procedures. There is probably further work to be undertaken, but progress is being made.

Mark Field: I am very heartened by the Minister's enthusiasm and confidence. Headline figures that were provided by the Under-Secretary refer to the value to the Government of the Crown preference as between £70 million and £100 million a year. Conservative Members are concerned that the pool of money will be far smaller. I would be interested to see whether the sum lost to the Crown will be anything like as much as £100 million a year. How much does the Minister envisage the Government losing in Crown preference per annum during the next three to five years?

Douglas Alexander: The Department estimates that the loss will be around £70 million a year—
 It being Five o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Order of the Committee [16 April]. 
 Adjourned till Tuesday 14 May at half-past Ten o'clock.